Applied Materials Inc., the largest chipmaking-equipment supplier, agreed to acquire Tokyo Electron Ltd. for $9.39 billion in stock in the largest deal for a Japanese company from outside the country in six years.Gary Dickerson, who was promoted to chief executive officer of Applied Materials this month, will be CEO of the combined manufacturer… Applied Materials shareholders will own 68 percent of the new entity. The consolidation among chip-equipment makers mirrors the increasing concentration within their customer base.

Foremski's Take: Moore's Law is slowing because of the increased costs in moving to larger silicon wafers (450 mm) and smaller geometries of 14nm.

Moore's Law has been running for almost half-a-century and doubling the density of transistors on a wafer while cutting costs in half on about a 18 month to 24 month schedule on a very consistent basis.

However, the costs of maintaining that incredible pace of innovation has been climbing tremendously and fewer chipmakers can afford to buy the hugely expensive production lines that are required to produce chips at the edge of the physical limits of reality.

Feature sizes of just a few atoms thickness have to be incredibly accurate and new materials with the right electrical properties at such small scales, have to be discovered. New sets of tools such as those produced by Applied Materials and Tokyo Electric have to be developed at great cost but with very few customers.

Moore's Law appears to be slowing to a three to four year doubling in transistor density.

When chip makers moved from 200 mm wafers to the current standard 300 mm wafer it meant that 40 per cent more transistors could be made for about the same cost to process a 200 mm wafer. This fueled low chip prices and made tech gadgets such as the iPhone, tablets, and digital cameras, cheap and more affordable over time.

However, moving to the larger 450 mm wafer is more of a problem because the huge size and larger weight of the wafers brings issues such as bending of the surface. The move to 14nm sizes and below, brings additional challenges.

In moving to 450 mm and smaller geometries the cost benefits and manufacturing efficiencies are not clear. Since it can cost more than $9bn to build a cutting edge fab and you have to make sure you are running it at nearly 100% capacity, it's no wonder that a slower pace is a prudent strategy.

The Applied Materials and Tokyo Electric merger is a reaction to the slowing of Moore's Law. With delayed orders on equipment and the high R&D costs, the cost savings from a merger are compelling.

The deal will have to pass anti-trust scrutiny and because there's so few chip equipment makers, it could be an issue. If anti-trust regulators nix the deal it could become a big problem for the entire tech industry — further slowing the pace of innovation and raising prices of next generation technologies and products.